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Banking News 11.04.2017

Demonetisation created significant disruption

throughout economy: Parliamentary panel

 

The Express News Service

Published on April 10, 2017

 

 

New Delhi, April 10 (ENS): The Central government’s demonetisation drive has created significant disruption throughout the economy and threatened economic output as it has virtually collapsed some of the sectors, said a parliamentary panel.   

 

The Committee on Subordinate legislation in its report tabled in Rajya Sabha expressed its anguish that such a major exercise has been carried out without any adequate survey or research on the needs of the different sectors of the economy.

 

It said that the main object behind cancelling legal tender character of Rs 500 and Rs 1000 notes on November 8, 2016 was to eliminate black money and to curb the infusion and circulation of fake currency notes.

 

“It was an effort to combat corruption, tax evasion and counterfeiting and eradicate black money. However, the Committee realizes that inevitably, it is the low-income and rural households who have been hardest hit by the currency reform. Demonetisation has weighed heavily on the country’s manufacturing sector,” said the committee.

 

It further said that the government took steps to mitigate the effects, it cannot be ignored that it created significant disruption throughout the economy and threatened economic output.

 

The committee was of the view that the Ministry of Finance and The Reserve Bank of India should hold discussions with the affected parties and provide support to sectors that virtually collapsed during the demonetisation process are recovered fully in due course.

 

Acknowledging that corruption is a problem but committee said that in the process honest, hard working and taxpaying citizens of India were made to suffer.

 

“The solution lies in simplification, rationalization and reduction in taxes, cutting regulations and curtailing officials’ discretionary powers, eliminating loopholes and widening the tax net,” it said.

 

The committee also felt that tackling black money require immense political will and legal and diplomatic heavy-lifting and hoped that the government would meticulously follow up its demonetisation move.

 

 

From E-Group, Banking-News

 

 

NEFTs get faster because banks will

process them every 30 minutes now

 

Vivina Vishwanathan, The Mint

Published on April 11, 2017

 

 

RBI has reduced the settlement time for

clearance of NEFT from 1 hour to 30 minutes

 

Mumbai, April 10: On 6 April, the Reserve Bank of India in its monetary policy announcement said that it has decided to reduce the settlement time for clearance of National Electronic Funds Transfer (NEFT), from 1 hour to 30 minutes. Here is what it means for you:

 

NEFT is one of the electronic payment systems in the country. It allows you to send money from one bank to another. You can send the money only during a certain hours. The fund transfer happens in batches. So far, NEFT payment settlement happened in hourly batches. Now this has been changed to every half an hour. Hence, in a weekday (Monday to Friday) the batch between 8 am to 7 pm will have 23 batches. So far there were only 12 batches.

 

On Saturdays, NEFT settlements happen between 8 am and 1 pm. Now, instead of six batches, it will be settled in 11. There is no NEFT on Sundays.

 

The cost of sending money using NEFT depends on the bank that you are transacting with. However, the RBI has issued guidelines on the costs too. For receiving money over NEFT, you don’t have to pay any charges. For sending, you will be charged a fee.

 

For an amount up to Rs10,000, the banks can’t charge you more than Rs2.50, excluding service tax. If you send between Rs10,001 and Rs1 lakh, you will be charged Rs 5 plus service tax, and for transactions between Rs1 lakh and Rs2 lakh, charges would be Rs15 plus service tax. For transactions above Rs2 lakh, the charge would be Rs25 plus service tax.

 

Banks are also supposed to pay 25 paise per transaction to the clearing house as well as destination bank, as service charge. However, it cannot be passed on to the customers.

 

To send money using NEFT, you need to have an account with a bank that allows you to do fund transfer using NEFT. You need to have your beneficiary’s bank account details such as account number, name of the receiver, and IFSC code. Once you add the beneficiary, you will have to wait for half an hour for the beneficiary to get registered. Once registered, you can start sending the money.

 

According to RBI, In case of non-credit or delay in credit to the beneficiary account, you can contact the NEFT customer facilitation centre of your bank; details of which is available on bank websites.

 

 

From E-Group, Banking-News

 

 

Demonetisation has given an extra boost

towards digital finance: NITI Aayog

 

Shreya Nandi

The Moneycontrol News

Published on April 10, 2017

 

 

New Delhi, April 10:  The government's massive currency culling exercise in November has given "extra boost" towards the movement of digital finance, Dhiraj Nayyar Officer on Special Duty and Head of Economics, Finance and Commerce at NITI Aayog said today. "If you look at the RBI (Reserve Bank of India) data on use of digital payments, there is a sharp rise in the immediate aftermath of demonetisation. Now, the figure has moderated a little" Nayyar said at MoneyTech, 2017.

 

In November last year, the government had scrapped high-value Rs 500 and Rs 1,000 notes in a bid to fight black money and terror financing. New Rs 500 and Rs 2,000 notes were introduced thereafter.  The move led to very limited cash in hand for individuals that paved the way for greater use of digital payments. Nayyar said that apart from the government's initiative to boost digital payments, the industry, as well as various app (mobile application) innovators have given it a massive boost.

 

"This is now decisively the time to move towards a digital platform," he said, adding that a unique public private partnership will not only play a crucial role for digital innovation, but will also lay the foundation for the financial economy. Nayyar further said that the four pillars--biometric-based identification Aadhaar, Jan Dhan Yojna, usage of smartphones, mobile applications, wallets and cost of digital connectivity-- will be the foundation on which digital finance, and financial data inclusion will be built in the next five years.

 

 

From E-Group, Banking-News

 

 

State Bank looking to scale up

merchant acquiring business

 

K Ram Kumar

The Business Line

Published on April 11, 2017

 

 

Mumbai, April 10:  State Bank of India is planning to form a joint venture company to ramp up its merchant acquiring business. This comes in the backdrop of the bank setting an ambitious target of scaling up its point-of-sale (PoS) terminal network from over 5.50 lakh now to 10 lakh in the next two-three years.

 

India’s largest bank is seeing a huge opportunity in merchant acquiring business (MAB) in the wake of the government’s push for digital and card payments to build a ‘less cash’ economy following demonetisation.

 

The big push by banks to expand MAB is underscored by the fact they collectively added 6,30,179 PoS terminals in the 10 months to January 2017. Bulk of the PoS terminal additions — 4,25,133 — happened after demonetisation of Rs. 500 and Rs. 1,000 bank notes was announced on November 8, 2016. As at January-end 2017, India had 20,15,847 PoS terminals.

 

Transaction value

 

In sync with the ramp-up in PoS terminals, the value of transactions jumped 52 per cent to Rs. 49,004 crore in January 2017 from Rs. 32,174 crore in November 2016, according to Reserve Bank of India data.

 

SBI is seeking a joint venture partner that can bring in necessary experience, expertise, capital and technology needed to achieve the 10 lakh PoS target. The bank will have majority shareholding in the proposed JV, which can leverage SBI branches for getting referrals.

 

As at January-end 2017, SBI had an installed base of 4,31,430 PoS terminals (this excludes the terminals of the five associate banks and Bharatiya Mahila Bank, which merged with SBI on April 1). It added 1,29,311 terminals in the 10 months to January 2017.

 

Besides increasing the reach of the traditional PoS and mobile PoS, SBI also wants the JV to offer person-to-merchant (P2M) products on PoS, such as Bharat Quick Response code-based acceptance, Unified Payments Interface, Aadhaar Merchants Payment System, e-commerce, and payment aggregation services.

 

Under MAB, a bank provides necessary infrastructure and facilitates payment for goods and services purchased through the medium of a card.

 

The stakeholders

 

The various stakeholders in an MAB are: the issuer (the bank that issues cards); card-holder (customer/non-customer using the card to make payments); merchant (entity which accepts payments through cards); acquirer (the bank that provides necessary infrastructure, such as POS terminals to merchants to accept payments, maintains relationship and facilitates acceptance payments via cards); and intermediary agency (RuPay, Visa or MasterCard which facilitate interbank settlements).

 

 

From E-Group, Banking-News

 

 

Mobile-based payment systems

raise privacy issues

 

Anil Urs

The Business Line

Published on April 11, 2017

 

 

Mumbai, April 10: There’s been a surge in transactions through the mobile payment channel, thanks to the rapid development of information technology, spread of mobile phones, and demonetisation. But are mobile payments secure? A study by the Centre for Software and IT Management (CSITM) at IIM Bangalore (IIM-B) raises significant questions on the risks associated with mobile phone-based payment systems.

 

The experiments

 

“We conducted experiments with five popular mobile payment systems, in four broad categories — wallets (Paytm, FreeCharge), direct link with user’s bank (BHIM), specific bank’s app for account-holders (iMobile by ICICI Bank), and basic USSD service (dialling *99#),” said Rahul De, Chairperson, CSITM, and faculty at IIM Bangalore. De explained that the study evaluated the apps on the following six key security principles for electronic banking transactions: the potential for confidentiality breaches; the management of the transactions for subsequent repudiation; the strength of the authentication process; the data and transaction integrity procedures; the extent of access and availability of services; and the procedures for maintaining privacy of customer information.

 

The study found serious privacy concerns with all the services, said Prof De. For instance, while in many apps like Freecharge, the wallets are not directly linked to third-party vendors (such as Uber or BigBasket), apps such as Paytm allow for automatic linkage with the vendors and they can deduct amounts without the explicit consent of the user.

 

Potential for confidentiality breaches was a problem observed in all the mobile payment methods, except USSD. A recurring security concern was that many of the apps do not automatically log the users out, and anyone having access to the phone can make financial transactions through these apps.

 

This risk is highest if the user loses or misplaces her/his mobile phone, and higher still if the phone is unlocked or unprotected. However, apps such as iMobile, BHIM have auto-logout/session time-out features.

 

‘Constantly evolving’

 

“We also observed inadequate management of the transactions and no evidence of systematic analysis of transaction patterns. The lack of these features are a potential security violation. However, even while we were conducting the study, we observed that the features of the apps and services were constantly evolving and changing.

 

“Hence, we add the caveat that the evaluation of the apps in this report is as observed during our study conducted between December 16 to January 17, and it is likely that some of the concerns presented in this report have been addressed, and perhaps new concerns have emerged,” Prof De emphasised.

 

 

From E-Group, Banking-News

 

 

Every 5-7 years we must

bring in new notes, says Gandhi

 

MANOJIT SAHA

The Business Line

Published on April 11, 2017

 

 

Technology is a double-edged weapon, it is available

not only to bankers but also to counterfeiters

 

Mumbai, April 10: R. Gandhi, who recently retired as Deputy Governor of the Reserve Bank of India (RBI), oversaw the currency management department in the central bank which played a critical role during the demonetisation exercise. The veteran central banker shared insights on how the central bank handled the issue and the way forward to tackle counterfeit notes. Edited excerpts:

 

After spending 37 years in Reserve Bank of India, what will you consider as the two most difficult phases?

 

Of course, 1991 was the first major troublesome period we had after the Harshad Mehta scam broke out. RBI got quite a bit of criticism though we believe people had misunderstood our role. Thereafter, we had to shift our focus, our internal processes, and we brought a lot of changes. It also was the same period when economic reforms started. This was one of the turning points when I look back.

 

The other one is, of course, is the recent demonetisation exercise, which also had quite an impact. So, these two events stand out.

 

During demonetisation RBI had to face criticism...

 

No central bank in the world can ever avoid criticism. The reason is that the central bank also looks beyond the normal horizon. Keeping that long-term perspective, we have to take certain decisions, which are not well appreciated or well understood in the short run. We will not be perturbed by such criticism.

 

What are the lessons from demonetisation for a regulator?

 

One lesson we learned is that people will be able to sustain a certain amount of pain provided it is for a larger purpose. So, if your objective is right, you need not hesitate to take such decisions. Normally, while taking such a decision [of note withdrawal], we tend to hesitate because it will create large-scale inconvenience to the public.

 

Earlier, we used to withdraw notes quietly. The public would not have known that we were withdrawing old series notes. In 2014, we took a call that we would make a conscious announcement to withdraw pre-2005 series notes. That time too we debated on whether we should announce it as we thought this may create panic or people may lose confidence in currency. So we were very hesitant.

 

But post-demonetisation, we have learned that if the purpose is right, people will agree to suffer for a brief period.

 

What is the strategy to curb counterfeiting of notes?

 

Technology is available not only to central bankers but also the counterfeiters. Technology is a double-edged weapon. So, we need to issue new series of notes much, much faster. Every five to seven years we should necessarily bring in new series of notes to be ahead of the counterfeiters. And in the process, we should be able to withdraw the old series notes.

 

Currency management is also a logistical issue. How can this be made more efficient?

 

Currency management is nothing but supply chain management – with good planning, we can deliver the things. Earlier, the supply chain management used to be from presses to RBI, then to currency chest and then to banks. That was the sequence. This process used to take several weeks.

 

During the demonetisation process, we could deliver the notes in terms of days and not weeks. We followed a different model this time – the hub and spoke model. We directly sent notes from the presses to the chests in identified locations. We had chosen chests in key locations, which we call hubs, from where it was distributed to other chests and bank branches. That way large-scale movement of currency was ensured in the shortest possible time.

 

One of the ideas that we are propounding is that of mega currency chests, which will act as hubs. Roughly, one big currency chest should be set up in each district. That chest should be able to cater to all the other chests in the district in the shortest possible time. A pilot was commissioned during the demonetisation period.

 

Did the demonetisation exercise come as a surprise to you?

 

The whole discussion started long back, sometime in 2016. So, that did not come as a surprise.

 

Okay. But, was the date a surprise…

 

Of course, date was finalised by the government. We never knew what would be the date. As a concept, it was debated, preparations had been going on.

 

Was the discussion started during Raghuram Rajan’s time?

 

Yes, it started during his time.

 

Do we need Rs. 200 notes in the system?

 

Any country will have various type of notes. Standards are 1 series, 2 series and 5 series. Earlier, we saw Rs. 1, Rs. 2 and Rs. 5 notes. Now, we have Rs. 10, Rs. 20 and Rs. 50. We also have Rs. 100 and Rs. 500, but Rs. 200 note is the missing one. It is a natural phenomenon that the gap will be filled. For conducting day-to-day transactions, the idea is that one should be able to complete a transaction with the least number of currency notes. So, the 2 series plays an important role.

 

Is there a plan to bring back Rs. 1,000 denomination notes?

 

The government has said that they don’t intend to bring it immediately.

 

The Rs. 2,000 note and the new Rs. 500 are smaller in size ... What is the reason behind the decision?

 

These new series notes are of an international standard, that is why we have changed it. With a smaller size, we could print more pieces of currency note out of one sheet. Production has increased roughly by 20 per cent.

 

So, will the size for the existing notes, like Rs. 100 and Rs. 50, change?

 

Yes, for all the other denominations, the new series will come in due course. These new series notes are easy to handle, easy to keep in wallets.

 

What was the reason for stopping the dissemination of data like deposits during the demonetisation period?

 

Central banks always access whether the information will be understood in the right way and make the right impact.

 

If we assess that the circumstances were not conducive for correct understanding then we do not share. During the demonetisation exercise, we came to that conclusion. We thought sharing the information could lead to more confusion.

 

What are the glitches involved in the transition to a digital world?

 

As I said, technology is a double-edged weapon. If it is in the wrong hands, it can be misused. So, it is necessary to build as many defences as possible and make it more secure and safe — that is the primary duty of the regulator.

 

Since cybersecurity is going to become a big challenge going forward, RBI has decided to create a new institution for research work in cybersecurity. Their major remit is to conduct research and development work in cybersecurity. It will also undertake high-end cybersecurity assessment of the banks. It will be fully functional in the next few months.

 

How safe are mobile wallets?

 

There are various types of payment systems available targeting different levels of simplicity, complexity and usage. The features of a low-end system will be very simple but obviously the security level will be less. Obviously, a high-end system has complex safety and security-related arrangements and they will be able to provide sophisticated services. Both are needed.

 

For the low-end systems, sophisticated structures are not needed because that will mean building too many secured features, which will make it high-cost, which is not warranted for a small value transaction. That is why, the mobile wallet, is at the lower end.

 

So, can payments systems be interoperable?

 

A mobile wallet is a different product from a bank’s net banking product. Ideally, there should be interoperability between payments systems. But we have to be careful before saying a full yes to it. The reason is cost.

 

You cannot cherry pick the positive features of one system and ask others to take it. It comes along with the package.

 

 

From E-Group, Banking-News

 

 

Credit Cards, Credit Ratings &

Phoney Customer Care of Banks

 

Sucheta Dalal

The Moneylife Online

Published on April 10, 2017

 

 

Many of us won’t forget a presentation by Ravi Subramaniam, ex-banker and author of several thrillers set in banking.

 

His book, If God Was a Banker, opened our eyes to the millions that Citibank probably earned on ‘Citibank Suraksha’, an insurance that was quietly loaded on to consumers, without their consent, in the 1990s. (The book, of course, has a fictionalised account—so any similarities that I have found with Citibank are purely coincidental.)

 

Although there was a media furore, the bank in the book only reversed charges if a customer called to complain. Apparently an overwhelming majority didn’t. The bad press didn't matter as long as the bottom-line was fattened and it was, in a big way.

 

Two decades later, HDFC Bank faces a similar controversy over its Rs110 ‘account management’ fee charged to customers without their consent. A furore ensued and has led to some change. But not enough – it remains an ‘opt-out’ service. HDFC’s head honcho, Aditya Puri, who was coincidentally with Citibank during the 1990s, will be laughing in his Bank and probably snag another trophy or two as the ‘best banker’

 

In HDFC Bank’s case, at least the shareholders probably approve of what the bank is doing. But what about State Bank of India (SBI), owned by the government of India? Its chairman is busy recovering both the cost of Jan Dhan accounts (as she has admitted) and the Bank’s bad loans from its hapless depositors, by levying hefty charges on a range of poor services.

 

Earlier this month, SBI launched its ‘Unnati’ card, which will drag its customers into the heaven of “digital transformation through cashless transactions.” Meanwhile, chairman Arundhati Bhattacharya has announced that the Unnati card will be issued to anyone who has a cash balance of Rs25,000 in his account (including Jan Dhan account-holders) without going into their credit history. Ms Bhattacharya portrays this as a selfless national service. It will cater to the credit card requirements of new users, especially those without any prior credit history, she said, adding, “we must credit empower our citizen and this is an initiative towards that.” We have a different interpretation. SBI is luring unsuspecting users. For this, it is offering ‘zero annual fees’ for four years.

 

This brings us back to Ravi Subramanian’s talk. One big insight from him was how every action of card-issuing companies that appears to benefit a card-holder is actually geared to improve its own revenues. It is meant to encourage you to spend money that you don't have and cannot repay at the end of the month—so you roll it over at a usurious interest rate. When an issuer upgrades your card—silver to gold, or gold to platinum—it is rarely because you are a good borrower (who diligently clears all dues at the end of the credit period), but because the bank earns a higher commission. In fact, credit card issuers love customers who roll their credit and pay the minimum dues. Those who pay up on time are a cost and a burden.

 

So let’s examine SBI’s generous Unnati offer more closely.

 

v         SBI’s ‘zero’ annual fee is an eyewash. What the card-holder needs to know is what interest SBI will charge and whether there are other hidden charges and costs. At the moment, SBI has among the highest charges for a slew of banking services, including minimum balance, cheque leaves, drafts, etc. In fact, its charges are often higher than those of private banks, without even the excuse of offering better service and ambience.

 

v         Secondly, SBI is already hiking costs, even before the Unnati card hits the market. On 4th April, political analyst and doctor, Dr Sumanth Raman, tweeted, “SBI Cardholder, w.e.f. 1st April 17, Rs100 will be charged for payments made thru cheque of up to Rs2,000.” This is a charge waiting to hit the Unnati card-holder whose minimum payments may be below Rs2,000. Of course, SBI’s excuse is that it wants them to be part of national digital transformation, or be punished.

 

v         Thirdly, SBI’s big push to increase the issue of cards and collections will raise funds to buy out General Electric, its long-time partner in the credit card business. By giving credit cards to every depositor who has 25,000 in her bank account, SBI expects a 300% growth in the card business in one year. If plenty of these customers, with no previous knowledge of the high interest credit card business, fall for the high-decibel, heart-tugging marketing (remember MasterCard’s ‘Priceless’ campaign?), it will mean big bucks for SBI.

 

v         Fourthly, SBI simply cannot offer credit cards to all those who have Rs25,000 in their account. The Reserve Bank of India (RBI) rules clearly require it to “ensure prudence while issuing credit cards and independently assess the credit risk while issuing cards to persons, especially to students and others with no independent financial means.” So, hopefully, its claims are more gimmicky than real.

 

Credit History for Whose Benefit?

 

The SBI chairman told a newspaper, “Presently, lack of credit history has been a challenge in increasing the card penetration in the country. In such a scenario, this card is likely to facilitate in generation of credit history for new users, which will help bringing them into organised financial stream.” This is an extraordinary assertion. India is not Europe or the USA, where it is hard for people without a credit history to get a credit card. Nowhere does the RBI’s master circular mandate a credit history requirement for issuing new credit cards. On the contrary, the entire Jan Dhan drive was triggered by the fact that India has a huge unbanked population with no access to formal funding, and hence no credit history.

 

Indeed, our credit bureaus are only helping lenders. It is almost impossible for a credit defaulter in India to get a loan, barring rare exceptions by finance companies. Many defaults date back to 2005 or earlier when people were clueless about the consequences of being listed as a defaulter. Even today, most people become aware about credit scores only when they are refused a loan. No lender offers better terms, or lower interest, to good borrowers with a high credit score as a matter of right. Even when it comes to resetting interest downwards on their home loans, lenders will do their best to extort a charge unless the borrower is savvy enough to haggle and threatens to switch to another lender. Here, too,

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